Define Mutual Fund and explain its objectives.
Ans. There are many investment options available in the financial market for an investor. Investors can invest in bank deposits, corporate debentures and bonds, post office saving schemes etc. where, there is low risk together with low return. They may invest in stock of companies where the risk is high and sometimes the returns are also portionately high.
Mutual Fund is an important segment of the financial system. For retail investors, who do not have the time and expertise to analyse and invest in stocks, Mutual Funds is a viable investment alternative. This is because Mutual Funds provide the benefit of cheap access to expensive stocks.
Mutual Fund is based on the concept of 'small drops of water make a big ocean'. It is essentially a mechanism of pooling together the savings of a large number of investors for collective investments with a stated objective of attractive returns and appreciation in their value. A Mutual Fund is a Financial Service Organisation that pools the savings of a number of investors who share a common financial goal. The money col- lected from investors is then invested by the fund manager in different types of securi- ties; these could range from shares to debentures based upon the scheme's stated ob- jective. The income earned through these investments and the capital appreciation realised is shared by its unit holders in proportion to the number of units owned by them
Concept of Mutual Fund:
Read Notes :- Explain the different Money Market instruments
Mutual fund is one of the most cost efficient financial products. By investing in mutual fund, one can gain the service of professional fund managers, who would otherwise be costly for an individual investor. Thus, a mutual fund is a most suitable investment for a common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.
Objectives of Mutual Fund Investments:
a) Goal-Based Investing: This is the top investment objective of Mutual funds. It offers different types of mutual funds in order to suit the needs of the various inves tors. The fund manager invests according to target asset mix suitable for investors after looking at his/her risk profile and liabilities etc.
b) Investment Growth: Many mutual funds investment objectives include the Investment Growth model. Investors who are looking for aggressive returns can do so by taking some extra risk. Mutual Funds on this objective invest money in fast- growing companies.
c) Tax Savings: Tax Savings is also one of the important investment objectives of Mutual fund. Mostly wealthy clients, Institutional investors, and corporates have an objective to minimize the tax burden. Mutual funds offer investors with a vari- ety of funds which will reduce the tax